Infra cos listing SPVs to derisk business

G Seetharaman

Mumbai: More and more infrastructure companies seem
to be looking to list their hived-off special purpose vehicles
(SPVs).An SPV is entity formed to execute a development project.

Hyderabad-based Madhucon Projects and IVRCL Infrastructure
& Projects recently said they are in the process of bringing t
heir SPVs under single holding companies and listing them.



Parvesh Minocha, managing director, transportation division,
Feedback Ventures, an infrastructure consultancy, said all
firms will eventually list their development business division.
"It makes sense because the risk-reward profile,
cash flows and pre-qualification criteria are different for
both the businesses," said Minocha.

The development business of infrastructure companies is
relatively recent. Earlier, companies acted as mere
construction contractors. But in the last decade or so,
the opportunities in infrastructure development have
grown so much that firms now not only construct a
project but also run (develop) it for a specified period.
Thus, there is a need to separate the contracting and development businesses.

"Listing is needed to bring in better corporate behaviour also," said Minocha.
Infra cos listing SPVs to derisk business K Venkatesh,
executive vice-president, development projects business,
Larsen & Toubro, said the need to de-risk the construction
business made them hive the company's development
business off into a separate entity.

L&T formed L&T-IDPL (Infrastructure Development
Projects) nearly a decade back and then sold 22% stake
in the firm to JP Morgan and India Development Fund.
L&T-IDPL currently has 35 SPVs covering sectors like
bnroads, airports and real estate.

Similarly, Gayatri Projects transferred the investment in its five
road SPVs to Gayatri Infra Ventures and offloaded a 30% stake
in the entity to Australia's AMP Capital Investors.

T V Sandeep Reddy, MD Gayatri Projects, said the venture
needs to grow to a desired size before it can be listed.
"But out ultimate aim is to list it to provide an exit route
to AMP Capital," he said. Even Venkatesh believes listing
is one of the exit options for investors though there is nothing
on the cards immediately.

DNA on September 10 reported that Madhucon plans to
yoke together its SPVs, which include four highway
projects, a power project and a coal mine, before listing
the company. IVRCL, on the other hand, will gather three
toll roads, a sewerage treatment plant and a desalination
plant under one entity for listing. Both the companies cited
the need for better valuation of the SPVs as the reason behind their listing.

Gammon India listed its SPV, Gammon Infrastructure Projects, in April 2008.
Parvez Umrigar, managing director, Gammon Infra, said
listing of SPVs is sensible to the extent that there are
investors who want to invest in your development business
and not the contracting business. "But you need a critical
mass to do so. You can't do it with one or two SPVs," he added.

S Ramnath, senior vice-president, Shriram EPC, said
it would make sense to list SPVs with good returns.
"Whether the listing will work or not will depend entirely
on the nature of the project," he said. Shriram EPC's
subsidiary Orient Green Power has around 20 SPVs
that generate power through renewable energy sources
like wind and biomass.
Some industry watchers believe a good mix of businesses
is essential in listing such an entity so that investors can
minimise risks. Minocha said there might be investors betting
on an individual sectors like roads or power.

To target such investors, GMR Infrastructure plans to list its
holding companies in the energy, airport and road verticals
separately. Patel Engineering also proposes to list its power arm.